We turn to offers that do not state that they will be held open. Does the making of an offer, without more, assure the offeree of a period within which it may respond so that the offeror may not revoke the offer during that period?
Attempts to answer this question have had a troubled history. The Draft on Formation that was presented to the 1964 Hague Conference stated: "An offer...may not be revoked unless the offeror has reserved to himself the right of revocation in the offer."[7] This proposal was a center of controversy at the 1964 Convention. The upshot was a compromise [page 161] (ULF 5) that made revocability turn, in part, on "good faith" and "fair dealing"—concepts that many UNCITRAL delegates concluded were too vague to be useful in this context. The revision of these rules on revocability was one of the more difficult tasks that UNCITRAL encountered in its work on formation of the sales contract.[8]
The most delicate issue was this: When the offer states a period within which the offeree must reply does it follow that the offer is irrevocable during this period? Support for an affirmative answer was based on civil code provisions that were interpreted to mean that if the offer must be accepted within a certain period it is irrevocable until the end of the specified period.[9] In accordance with this view, the 1964 Hague Formation Convention (ULF 5(2)) provided that an offer may not be revoked if "the offer states a fixed time for acceptance or otherwise indicates that it is firm or irrevocable."
§143.1 (c) Effect of "Fixed Time for Acceptance" Some delegates urged that UNCITRAL should retain the above language of ULF 5(2) and contended that stating "a fixed time for acceptance" would be understood as a promise to hold the offer open. Others agreed that in some settings the words would be understood as setting a time limit beyond which an acceptance would be too late—the issue addressed in Article 18(2) by the provision that an "acceptance is not effective if the indication of assent does not reach the offeror within the time he has fixed" (§161, infra) rather than the issue (Article 16(2)) of whether the offeror promised to hold the offer open for a prescribed time. Those holding the latter view proposed that the rule on irrevocability be formed in general terms: Does the offer "indicate that it is irrevocable", without specifying the expression that would communicate this meaning. The UNCITRAL Working Group, however, approved this language: "...an offer cannot be revoked:...(b) If the offer states a fixed time for acceptance"—a formulation that seemed to give decisive effect to a [page 162] specified form of expression.[10] UNCITRAL in its 1978 review of the draft provisions on formation revised the Working Group draft to provide that an offer can not be revoked: "(a) If it indicates, whether by stating that a fixed time for acceptance or otherwise, that it is irrevocable". Some, but not all, delegates stated that this revision reflected the view that the ultimate test was the interpretation of the offer rather than the use of a specified expression.[11] At the Vienna Conference the "fixed time" and "general rule" proponents were unable to modify the language to clearly express their positions; the 1978 UNCITRAL draft became Article 16(2)(a) of the Convention.[12] It is not easy to assess the outcome of this dispute, which may well appear to be a tempest in a teapot. It seems necessary to give effect to two decisions: (1) The 1978 UNCITRAL retreat from the Working Group draft and (2) The retention of the reference to a "fixed time for acceptance". Both decisions can be accommodated by concluding that (1) the reference in an offer to a "fixed time for acceptance" creates a presumption of irrevocability until the stated date, but (2) the presumption can rebutted by showing that the offer in its full setting (Art. 8(3)) would be understood to refer to the automatic expiration of the offer (Art. 18(2)) rather than a promise not to revoke.[13] (The mandate of Article 8(3) for interpretation of statements in their full setting is discussed at §§109–111, supra.) An offeror who wishes to set a date for expiration of the offer and also to reserve the power to withdraw the offer should make this meaning clear. The Convention, of course, respects the basic principle that the offeror is "master of its offer". See Article 6; Kritzer Manual Ch. 22. §143.2 (d) The Meaning of Specified Words: International Drafting Technique To this writer (who did not take part in the controversy over Article 16), the most interesting question is not the area of irrevocability but a general question about statutory drafting: Should a statute attempt to state the meaning of specified words or expressions used in private contracts? Statutory drafters may define the words they use but should not try to state the meaning of words and expressions used by others, especially in contracts made by private persons in a virtually infinite variety of settings.[page 163] Attempts in domestic statutes to define the expressions used in contracts have led to difficulties;[14] the problems are multiplied in an international statute prepared for enactment and use in numerous different languages and commercial settings. The only vessel in which one can hope to carry a uniform rule across multi-lingual terrain is by the description of a thought or an idea—not by a specified expression in a contract to which the statute attributes a particular meaning. We now assume that the offeror made no statement that promised or indicated that the offer was irrevocable (Art. 16(2)(a)). Nevertheless, under paragraph 2(b) an offer cannot be revoked "if it was reasonable for the offeree to rely on the offer as being irrevocable and the offeree has acted in reliance on the offer". One application of this provision may be illustrated as follows: Example 16B. On May 1 Builder asked Supplier to submit an offer for the sale to Builder of a specified quantity of bricks. Builder explained that he needed the offer to use in computing a bid on a contract to construct a building. Builder added that he must submit the bid by June 1 and that the bids would be opened and the contract awarded on June 15. On May 7 Supplier gave Builder an offer for the bricks, and Supplier used the offer in preparing his June 1 bid for the building contract. On June 10 Supplier notified Builder that he revoked his offer. On June 15 the bids were opened and Builder was awarded the contract. Builder thereupon informed Supplier that he accepted Supplier’s offer. In the above example, it was "reasonable for the offeree [Builder] to rely on the offer as being irrevocable" since Supplier knew that Builder would use the offer in compiling its bid. In addition, Builder "acted in reliance on the offer" in submitting a bid that led to a contract binding it to construct the building at an agreed price. Both requirements of paragraph (2)(b) are satisfied, and Supplier’s attempt to revoke his offer is ineffective.[15][page 164] This approach has support in domestic law. As we have seen, some civil law legal systems hold offers to be irrevocable for the period needed for a response; other legal systems do not go so far but hold that reasonable reliance on the offer bars revocation or (in some cases) makes the offeror responsible in tort for damages.[16] In the United States the prevailing view is consistent with the Convention in barring revocation in cases like Example 16B.[17] Example 16B provides only one illustration of situations where revocation of an offer may be ineffective because the offeree has reasonably relied on the offer. However, the legal effect of Article 16(2) is subject to an important limitation imposed by the Convention’s rules on the time for acceptance. Regardless of the offeree’s reliance, under Article 18(1), infra at §157, the making of a contract requires a "statement...or other conduct...indicating assent." And, under Article 18(2) there is no contract if the offeree’s "indication of assent does not reach the offeror within the time he has fixed or, if no time is fixed, within a reasonable time..." (See Art. 18, infra at §164). This limit on the time for acceptance imposed by Article 18(2) is especially significant in situations in which Article 16(2) does not limit the period of irrevocability—as in paragraph (2)(a) when an offer states that it is irrevocable "without stating a fixed time for acceptance" and in paragraph (2)(b) when "the offeree has acted in reliance on the offer". This time limit is important to prevent the offeree from speculating at the offeror’s expense. Some acts of reliance that create irrevocability under paragraph (2)(b), like seller’s shipment of goods in response to an order (§164, infra), create little danger of abuse; the acts that led to irrevocability clearly commit the actor to performance. Other acts may be ambiguous, such as the purchase or assembly of goods or supplies that the seller might (or might not) need to fill the buyer’s order. In these cases, later events that make the contract more (or less) attractive may tempt the seller to claim that these steps were (or were not) taken in reliance on the buyer’s order. The mandate of Article 7(1) to interpret the Convention "to promote the observance of good faith in international trade" indicates the usefulness of two safeguards: (1) caution in basing irrevocability on ambiguous [page 165] conduct and (2) enforcement of the time limits for acceptance established by Article 18(2) §164, infra. There are other similar situations calling for construction to prevent abuse and promote good faith; see, e.g., Art. 7 at §95 supra and Art. 46 at §285 infra..[18] §145 C. Responsibility in Tort for Reliance on Offer In some legal systems, if an offeror induces the offeree to incur expense in reliance on an offer and then withdraws the offer, the offeror may be liable in tort even though the withdrawal prevents the conclusion of a contract and thereby excludes the full battery of remedies for breach of contract.[19] Will such rules of domestic law apply, alongside the Convention, when the offeree suffers loss by reliance on an offer? One cannot envisage all of the circumstances in which this question may arise; hence, there will be no attempt to give a general answer but the question does deserve attention because of its relationship to basic issues concerning the scope of the Convention.
In the Commentary to Article 4 we examined some of the implications of the statement that the Convention "governs only the formation of the contract" of sale and the rights and obligations of the seller and the buyer arising from such a contract." This question arose: Do domestic rules of "product liability," applicable when defective goods are supplied under a sales contract, co-exist with the Convention’s rules that regulate breach of contract? In that context it was suggested that when the very facts that invoke rules of "product liability" invoke rules of the Convention, the domestic rules are supplanted by the Convention. In short, it would be wrong to bypass the uniform international rules by pinning a non-contract label to the very facts that are regulated by the Convention. (See Art. 5, supra at §71.) Are there situations in which this line of thought would bar recourse to domestic law that awards damages for wrongful revocation of an offer?[page 166]
§147 (a) Operative Facts That Reach Beyond Contract Domestic law would not be excluded whenever the offeror harms the offeree by wrongful conduct other than the making and revocation of the offer. For example, domestic remedies for fraudulent inducement to make a contract are not affected by the Convention. (See Art. 4, supra at §65 and Art. 7, supra at §97.)
A more difficult question can best be examined against the following setting:
Example 16C. Buyer offered to purchase complex machinery from Seller, which Seller would manufacture according to designs supplied by Buyer. The offer included a stated price and stated that the offer would be held open for two months to enable Seller to determine whether he could make the machinery at that price. Seller immediately started the process of designing manufacturing procedures and computing costs of production. Two weeks later, when Seller had spent substantial sums in computing costs but had not completed this work, Buyer notified Seller that he could no longer use the machinery and withdrew the offer. Seller thereupon stopped work on the cost estimates since it would be uneconomic to invest further funds in preparing to make machinery that Buyer would not accept and perhaps could not pay for.
§ 149 (a) Applicability of the Convention Has Seller a claim under the Convention? In Example 16C Buyer purported to revoke an offer that, under Article 16(2), "cannot be revoked". However, the only remedy explicitly stated in Part II of the Convention is to hold the offer open so that the offeree can accept and thereby complete a contract (Arts. 18 and 23). Examination of the remedies specified in Part III of the Convention indicates that they are applicable to breach of contract.[20] In Example 16C the offeror’s (Buyer’s) wrongful revocation made it impractical to conclude a contract since a decision as to acceptance would require further expenditures and it would be hazardous and uneconomical to invest added funds that could be recouped only by a lawsuit.[page 167] § 150 (b) Gap-filling The above discussion suggests that a situation can arise where the Convention bars revocation but fails to provide an effective remedy. This invites our attention to Article 7(2), which provides that "questions concerning matters governed by this Convention which are not expressly settled in it are to be settled in conformity with the general principles on which it is based..." Does this authorize tribunals to develop a remedy under the Convention for the offeror’s wrongful revocation? The Convention—and only the Convention—controls the question whether the revocation of the offer is rightful. The Convention provides one remedy for wrongful revocation—the offeree can accept the offer in spite of the revocation. But when special circumstances (as in Example 16C) make this remedy ineffective it would be reasonable for a tribunal to close the gap that is revealed by the above example. The need for a remedy addressed directly to the damages caused by a wrongful revocation is supported by domestic law and by recent studies directed to the reform of domestic law.[21] Responding to this need by filling a gap in the Convention could promote the declared goal of uniformity since solutions applying the Convention would be taken into account by other tribunals and a common jurisprudence would develop. (See the Commentary to Art. 7, supra at §96.) [22] § 151 (c) Remedy Supplied by Domestic Law Let us now assume that, contrary to the above suggestion, a tribunal declines to develop a remedy under Article 7(2) of the Convention. In this event, the tribunal should at least work from the premise that, by command of the Convention, the revocation of the offer was wrongful and draw on applicable domestic law for the remedy that is appropriate for this type of wrong.[page 168]
FOOTNOTES: Chapter on Article 16
5. Under Art. 11, supra at §126, contracts need not be in writing. The Uniform Written Obligation Act, prepared for adoption by states in the U.S.A., enforces promises not to revoke in a signed writing but does not contain the other restrictions found in UCC 2–205. 11. IX YB 41, paras. 132–139, Docy. Hist., 375. 12. O.R. 278–280, Docy. Hist., 499–501. 13. See Schlechtriem (1986) 53 note 173. 14. See the criticism of (U.S.A.) UCC §2–316(3)(a) in Honnold, Sales 81. 15. As we shall see, Art. 18(3) provides that "the offeree may indicate assent by performing an act, such as one relating to the dispatch of the goods or payment of the price..." This language refers to acts which relate to the performance of the contract while Art. 16(2)(b) has wider scope. In Example 16B, Builder’s use of Supplier’s offer in computing Builder’s bid was not part of the performance of a contract to buy from Supplier. Bordering on both Art. 16(2)(b) and Art. 18(3) is the beginning of the performance requested by the offeror. See Art. 18, infra at §§157, 163–164. 16. I Schlesinger, Formation 770, 776 (France; report by P. Bonassies). 18. Winship, 17 Int. Law. 1, 11 (1983). 20. See Arts. 71–77 and the official headings for the remedial provisions of Part III, Ch. II. Sec. III and Ch. III. Sec. III. But cf. Arts. 45 & 61. As to questions of mitigation, see Art. 77, infra at §§417–419.
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Institute of International Commercial Law - Last updated February 24, 2005
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